Price Cutting Helps P&G Post Strong Quarterly Earnings, Sales

But CEO McDonald Urges Share Growth, Says Not to Expect Consumers to Continue Trading Down

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BATAVIA, Ohio ( -- Selective price cuts and increased marketing support helped Procter & Gamble Co. blow through analyst forecasts for organic-sales growth last quarter. The package-goods giant was able to meet its long-term goals for the first time in more than a year with a 5% gain that hit the top end of company guidance and bested analyst forecasts by a full two percentage points in some cases.

P&G credited selective pricing actions with helping return its laundry business to high single-digit volume growth.
P&G credited selective pricing actions with helping return its laundry business to high single-digit volume growth.
P&G capped a series of generally bullish reports for industry players the past week, particularly given that executives said the marketer last quarter still was losing share to competitors broadly, and specifically in North America, though certainly it beat one rival, Kimberly Clark Corp., on the top line and closed the gap considerably with another, Colgate-Palmolive Co., compared to last quarter.

Colgate and Estee Lauder today also reported strong quarters, with organic-sales growth up 6.5% and 6%, respectively. That follows a 5% gain reported earlier this week by Energizer Holdings and 3% by Kimberly-Clark Corp, and high-single-digit sales gains for Johnson & Johnson in categories as such skin care and baby care.

Among other things, the strong results indicate much of the industry's weakness in the year-ago quarter really did come, as several executives claimed at the time, from retailers and consumers drawing down their inventories and pantries to preserve cash. Even with Walmart continuing to pare the industry's promotional display space by removing pallet-sized displays from its aisles, key players that have reported numbers so far have had strong results.

Chairman-CEO Bob McDonald said P&G gained share last quarter in Latin America, roughly held it in Western Europe and made some of its biggest gains on rebounds in the economies of Central and Eastern Europe that were perhaps the hardest hit by the global financial crisis a year ago.

Paying for past behavior
Less bullish for the industry was an indication P&G and others may have to pay dearly for some past behavior. P&G took a reserve of $267 million, for possible future fines related to allegations of price fixing and other anti-competitive conduct in France and Italy, which after years of investigation filed complaints against P&G last quarter. The reserve carved 9 cents off earnings per share, which were down overall 10 cents, or 6% overall, to $1.58.

The reserve doesn't cover investigations continuing in other countries, including the U.K., Germany and Romania, as well as more broadly by the European Union. In all, the investigations span most of the prior decade, numerous product categories and more than a dozen package-goods companies. P&G's quarter-billion-dollar reserve for just two countries suggests total industry fines could ultimately exceed $1 billion.

Regardless, the trend for P&G at the outset of the current decade is more toward lower prices, particularly in selected categories such as laundry and batteries that have been particularly hard-hit by private-label incursions. P&G credited selective pricing actions with helping return its laundry business to high single-digit volume growth.

Fabric and home care and baby and family care (tissue) broadly delivered P&G's strongest top-line results, with organic sales up 7% and 8%, respectively. Results for beauty and grooming improved from prior quarters, but continued to lag the company, with a 4% increase and flat results respectively.

Chief Financial Officer Jon Moeller said the quarter showed some vindication for the company's strategy of innovating both on the premium and value ends -- with growth provided by such things as Tide Stain Release pre-treaters and Bounce Dryer bars as well as the Pampers Baby Dry value-priced diaper line in Western Europe.

Mr. McDonald said as P&G concentrates on returning to gaining share on rivals, it also wants "profitable growth," and that while consumers may remain cautious with their money, trade-down isn't inevitable. He pointed to women in India willing to pay for disposable diapers so their babies will sleep through the night, which figures into their development.

"I think this idea that this economy is causing everyone to trade down is a little bit overly general and too broadly applied," Mr. McDonald said.

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